Going from 1960 to the month before the Lehman crisis in 2008, the average exponential growth rate of global fiat currency was around about 5.9%, year in/year out. It followed that track very closely. Then of course we had TARP and all of the rest of it. And then we had QE. And guess what? The level of fiat-money quantity is now over 60% above that long-term trend line. Now, if we stand back unemotionally and look at that chart, we would say that this is monetary hyperinflation.Here we have this situation now where the Central Bank, the Fed, is having to produce money to finance the government deficit. It’s having to produce money to keep interest rates down so that the banks don’t have balance-sheet problems. And if it slows down in that production of money, and even if it doesn’t increase the rate of the production of that money, then our world is going to come to a rather nasty halt.It looks like not only are we in a debt trap, but we are in a hyperinflationary trap.By Chris Martenson, Peak Prosperity:

What ‘Fiat Money Quantity’ (FMQ) Is Signaling

I started off with the desire to put together a metric of money which allows me to compare sound money with fiat money. My approach to this was to look at what happens in how fiat money was created.

It originally involved the money substitute. In other words, you and I or our great-grandfathers or our great-great-grandfathers would deposit gold in the bank for safekeeping. The bank would give them either notes, which they could then cash anywhere where it was accepted where that bank’s credit was valuable, or alternatively, it would give them an account – a deposit account – which would show that yes, the bank holds the gold on your behalf. That was the starting point. So that was how deposits and cash were originally created as money substitutes.

Then the next thing happened: Central banks were invented. What happened was that they took over the note-issuing monopoly. They were given, by the government, essentially a monopoly. In return for that, all of the banks within the central bank’s system would take the gold that was originally deposited and move it into the central bank in return for – guess what? – deposit accounts and nice new bank notes.

So really what I wanted to do was to quantify that process [by creating the FQM]. It involved taking cash, all of these instant-access deposits, or deposits which are readily accessible, plus the deposits that the banks have at the central bank, because that is money just the same as your deposit account is in your bank; it is exactly the same in that sense. If you look at that, you get some very interesting statistics.

Going from 1960 to the month before the Lehman crisis in 2008, the average exponential growth rate was around about 5.9%, year in/year out. It followed that track very closely. Then of course we had TARP and all of the rest of it. And then we had QE. And guess what? The level of fiat-money quantity is now over 60% above that long-term trend line. Now, if we stand back unemotionally and look at that chart, we would say that this is monetary hyperinflation.

Here we have this situation now where the Central Bank, the Fed, is having to produce money to finance the government deficit. It’s having to produce money to keep interest rates down so that the banks don’t have balance-sheet problems. And if it slows down in that production of money, and even if it doesn’t increase the rate of the production of that money, then our world is going to come to a rather nasty halt.

It looks like not only are we in a debt trap, but we are in a hyperinflationary trap, potentially. We need someone who is really quite strong and understands these things to be able to stand on the system and say, no more!

So my question to you, Chris, is, can anyone do that? Do you think Janet Yellen will do that?

One of the things that’s interesting in this, which I think is a dynamic that is going to play out over the next few months, is, here we are expanding a quantity of money hugely. But at the same time, what we’re not seeing is the prices of raw materials, of things like that really reflecting that expansion of money. Now, there is always a time lag between the two effects. But actually we are seeing this effect on certain things, and in a way in which one would expect. That is that asset prices, particularly things like property, are beginning to rise.

What FMQ Indicates for Gold

The one thing which I think is being triggered is gold. We had a good rise today. We had about a $40 rise. Now I think that this is something quite significant, really, for a number of reasons, but if I go back to my FMQ (fiat money quantity), if I adjust the price of gold from just before Lehman Brothers went under, I think I’m right in saying that in July 2008, the price of gold at the close of that month was $918/ounce.

Now, if you adjust that price by the extra fiat money quantity that is now in circulation, gold has actually gone down, in real terms if you like, by about 30%. Put another way, if the price of gold was to match in real terms that $918 level, it would today be about $1,860. So we have this extraordinary thing where gold, for whatever reason, has become extremely undervalued compared to where it was before Lehman Brothers went under. Now this is important, because before Lehman Brothers went under, not many people actually understood systemic risk. So the price of gold did not really include the weighting for systemic risk.

The other thing I would say is that since then, with our FMQ having taken off, there is a substantial hyperinflation risk that is going to affect prices somewhere down the line. And yet, gold is trading at a discount of 30% to where it was before all of this happened, so it is horribly mispriced.

Click the play button below to listen to Chris Martenson’s interview with Alasdair Macleod 45m:56s):

For anyone who is still ‘sane’ in Europe, the so-called ‘one-time’ 10% tax on all bank deposits should be the ‘straw that breaks the camels back.’ Does anyone truly believe this will be a ‘one-time’ event? If they are allowed to do it once, they will do it again, and again… Also, does the word ‘IMF’ even exist in all of the banking agreements that people sign off on when they apply to open bank accounts? Where does the IMF get the authority to imposed such a tax? And what is so ‘monetary’ about the ‘International Monetary Fund’, since they have so little Gold and hold no Silver at all?

This turned out to be a particularly engaging interview for me. Right off. I spotted an interesting convergence between Mr. Macleod’s ‘initial fiat inflection point’ set at 1960, which coincides with my own (mid-60s), basing my logic principally on removal of silver from circulation (true death of money). When at 9:30 mins., Mr. Macleod spoke of his observation that banks are inextricably having to increasingly supply revenue shortfalls for government to service interest, I was amazed that Mr. Martenson didn’t illuminate that with his signature ‘Debt Saturation’ explanation for the phenomenon, which I early on found brilliant and adopted.

It became abundantly clear that Mr. Macleod’s ‘Fiat Money Quantity’ study isn’t exactly developed out fully, because he opined merely seeing the appearance of “not only a debt trap, but a hyper-inflation trap … potentially”. Potentially?. Then, when he mused whether or not Janet Yellen will “stand on the system and say no more”, underlining only ‘potentiality’ of hyper-inflation; I plainly recognized he really was NOT comprehending the entire panorama of what he’s ascertained so far. At that point (11:12 mins) Mr. Martenson graciously expressed a far greater appreciation of the quandary, stating exclusively … “it’s the system that requires” the currency infusion on the global stage, not only America, which I’ve been so adamant to impress on readers here, explaining how the banknote scheme is intrinsically doomed from its very core. However, the additional element even he hasn’t yet seen, is that control of current interest rates has always been presumed by the bankers and politicians as modulator of the automated inflation, but has only in the past decade or so … proven … ineffective.

What a delightful allegory drawn by Mr. Martenson, of politicians raised on the Moon and suddenly having to accommodate this greater degree of gravity! It actually captures their predicament in so many ways and on so many levels.

I really don’t know how Mr. Macleod can actually believe that central bankers don’t fully know their banknotes are suffering a purchase power confidence crisis (25:10 mins). That’s the entire cause for their ‘jihad’ against precious metals and a recognition most readers here hold predicate in our observations. We KNOW that … Paper Rots, Coin Does Not.

Funny you should note Biden’s periodic absence (nay, complete disappearance) from his roles … perhaps he was off being someone else?

I watched the entire 5 parts and kept remembering that computer ‘morphing’ too, is a technology not mentioned. Still, despite some apparently preposterous connections drawn (Biden as Jimmy Paige of Led Zeppelin???), I was fascinated at the ‘possibilities’ the videographer emphasized, because his larger point … that in these times it’s near impossible to accept what’s seen as accurate … ought to be a factor in our perceptions.

“I spotted an interesting convergence between Mr. Macleod’s ‘initial fiat inflection point’ set at 1960, which coincides with my own (mid-60s), basing my logic principally on removal of silver from circulation (true death of money).”

Oh, Patrick! Real money is not dead. It was taken political prisoner in 1965, escaped in 1974, and has been hiding out amongst patriots ever since. Many of us on here have given it refuge against the day when it will once again emerge from the fiat shadows to stand proud and tall on the world financial stage once again. 😉

Point taken and well put. We’ll yet see our beloved King and Queen restored to their rightful thrones and these barbarian usurpers banished forever more.

As always, I deeply appreciate your warm (AND occasional admonishing) comments, Ed. I’ve been VERY active over on the FB side attempting to swell its followers. While I refuse any credit, those numbers HAVE grown nicely, which only serves to effect a ‘cross-over’ migration here to SD’s web-side. Like this gaggle needs more liveliness of discourse. Still, diversity has its merits.

Biden is probably suffering from political Alzheimer disease. Convenient and allows his boss to kick him to the side of the road and have Hillary take the presidential high road. She’ll hire Obama as secretary of state.

Being stationed here since July 2012, I have seen Japan go through a 30 percent loss in the value of the Yen in only one year. The yen rate when I arrived last year was 70 Yen to the Dollar. Today it fluctuates between 97-100. Prices here are behind a little on the inflation but I have monitored food prices since January and they are starting to catch up. They have not changed the size or quantity of items as with the hidden inflation in the states but prices are gaining quick. I think this place will give at least an outline of what might happen in a sudden rush of inflation. I’ll keep tracking while I’m here. I have been reading this forum for a while now and figured it is about time to start giving some input. Nice to see like minded individuals in a disoriented world.

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